The Chief Medical Officer has advised the government that consumption of widget-corn improves the survival rate of COVID-19 by 20%. Suppose the supply and demand functions for widget-corn are:QD = 100 – 5P (1)QS = 5P. (2)P is the price in dollar and Q is the quantity in kilograms.a. Determine the market equilibrium price and quantity of widget-corn?Calculate the consumer surplus, producer surplus, and total economic surplus at the market equilibrium.Having confirmed the positive impact of widget-corn consumption on COVID-19 patients, the government has ordered widget-corn sellers to charge $5 per kilogram.(i) What type of price regulation policy is this? Briefly explain. (ii) Calculate the impact of the policy on the quantity of widget-corn supplied and demanded.(iii) Explain the impact of the policy consumer surplus, producer surplus, and total economic surplus. (iv) Is the outcome of the government’s policy efficient and, therefore, maintained or abandoned? Explain in detail. d. Using equations (1) and (2), sketch the demand and supply diagram and indicate your results from parts (a) – (d). Correctly label the diagram.

Since you have posted multiple sub-parts, we will answer the first three for you. (a) Equilibrium…

Answered: The Chief Medical Officer has advised…

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter6: Demand Relationships Among Goods

Section: Chapter Questions

Problem 6.12P

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The Chief Medical Officer has advised the government that consumption of widget-corn improves the survival rate of COVID-19 by 20%. Suppose the supply and demand functions for widget-corn are:
QD = 100 – 5P (1)
QS = 5P. (2)
P is the price in dollar and Q is the quantity in kilograms.
a. Determine the market equilibrium price and quantity of widget-corn?

Calculate the consumer surplus, producer surplus, and total economic surplus at the market equilibrium.
Having confirmed the positive impact of widget-corn consumption on COVID-19 patients, the government has ordered widget-corn sellers to charge $5 per kilogram.
(i) What type of price regulation policy is this? Briefly explain.
(ii) Calculate the impact of the policy on the quantity of widget-corn supplied and demanded.

(iii) Explain the impact of the policy consumer surplus, producer surplus, and total economic surplus.
(iv) Is the outcome of the government’s policy efficient and, therefore, maintained or abandoned? Explain in detail.
d. Using equations (1) and (2), sketch the demand and supply diagram and indicate your results from parts (a) – (d). Correctly label the diagram.

Definition Video Formula Definition Phenomenon in which market supply and demand balance each other. Market equilibrium is the economic state in which the market demand curve intersects the market supply curve, giving us the equilibrium price and equilibrium quantity for which a commodity can be sold and purchased in an economy. When market equilibrium is achieved, it suggests that all resources have been allocated efficiently and that there is just a distribution of income and resources in the economy. Video Formula

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